Raising rates is always a tricky process. When you go to raise rates, there will always be the lingering question of whether or not clients will leave. But every business needs to increase their rates over time to account for higher overhead, inflation or increases in staff.
Raising rates is a must, but knowing when to increase rates can be difficult.
Signs will start to present themselves when rates need to be increased, such as:
1. You’re Consistently Booked, Often Overbooked
If your service is in such high demand that you’re often overbooked, it’s time to increase your rates. Your clients already realize that you have a service that is impeccable, or they wouldn’t continue using your service.
There will be a time when you realize that you have no optimal way to increase your earnings.
Perhaps you’re booked for 80 hours a week. If you charge $30 an hour, you’ll be able to earn a maximum of $2,400 per month.
If your overhead is rising, or you need to make more money or free up some of your time, raising rates by 15% may be acceptable. You may lose some clients, or you may retain all of your clients.
But in most cases, you’ll be able to retain clients, increase earnings and work less.
Existing clients will appreciate you grandfathering them into the old prices for a specified period of time. You may even want to increase rates slowly over time for these clients.
2. Demand is So High That You Need to Expand Service Areas
Increasing service areas because of an under-served market is a good thing. You’ll be able to increase your marketing efforts to a wider range of clients or customers. Nu Flow has several service areas for this very reason.
But in a market where there is little competition and high demand, you can start to increase rates.
You’re almost offering an “exclusive” service, so this can come at a higher price. You also need to adjust for driving to and from the new service areas. All of these extra transportation costs should be added into the price, and there will also need to be time-lost considerations.
It’s not uncommon to raise rates for service areas that are further away.
3. Expenses are Growing, or You’re Revamping Offers
Expenses may be increasing or tariffs may cause the cost of goods to rise. Higher operating costs means more overhead and slimmer profit margins. You’ll need to consider your expense growth, and if expenses have eaten too far into your profits, it is time to increase prices.
When vendors keep increasing prices, it’s time to raise rates because you have no other option than to pass on the costs.
Upgrades to your offers also means that it’s time to increase rates. Maybe you’re adding in extras or have incorporated a new, more efficient technology into your operations. Customers will pay for higher quality and better service.
Upgrades can mean offering the latest technology, or it can be an upgrade to how you conduct your service.
You may also have upgrades in terms of “employees.” Adding to your staff may warrant a price increase, and when turnaround times are faster, customers are often more than willing to pay higher prices.